May Consumer Spending Surprisingly Declines; Core Inflation Accelerates

10:40 AM EDT, 06/27/2025 (MT Newswires) -- Consumer spending unexpectedly declined last month as outlays on goods turned negative, while the Federal Reserve's preferred inflation metric accelerated annually and sequentially, government data showed Friday.

Personal consumption expenditures decreased 0.1% in May, following a 0.2% gain the month before, the Bureau of Economic Analysis said in a report. The Bloomberg-polled consensus called for spending growth of 0.1%. May's drop marked the first monthly fall since January.

Goods spending moved down 0.8% after rising 0.2% in April, as outlays turned negative on both durables and nondurables. Services spending growth slowed down to 0.1% from 0.2% on a monthly basis.

"Consumer spending was weak in May, as tariff front-loading eased, and services spending continued to cool," TD Economics Economist Ksenia Bushmeneva said in a note. "This broad-based slowdown has pushed our tracking of (second-quarter) consumer spending growth to 1.3% (annualized), down from our earlier 1.7% projection."

The annual headline PCE price index accelerated to 2.3% in May, in line with the Street's view, from April's 2.2% increase. Price growth remained unchanged at 0.1% on a monthly basis, meeting expectations.

The Fed's preferred core measure, which excludes food and energy, moved up to 2.7% from 2.6%, which was the pace estimated by analysts for May. Sequentially, the core measure rose to 0.2% from April's 0.1% gain, which was the Bloomberg consensus for May.

"PCE inflation remained benign in May, but we are only just starting to see the impact of tariffs in consumer goods prices, and several favorable one-offs depressing inflation over the past few months will go into reverse from June onwards," Oxford Economics Deputy Chief US Economist Michael Pearce said in remarks emailed to MT Newswires. "Despite the slowing economy, the upside risks to inflation will keep the (Federal Reserve) on the sidelines until much later in the year."

Earlier in the week, Fed Chair Jerome Powell said the central bank can continue to wait and evaluate how the US economy responds to policy changes before it adjusts its monetary policy. The Federal Open Market Committee kept its benchmark lending rate unchanged last week for a fourth consecutive meeting.

Markets are currently pricing in a 19% probability of a 25-basis-point rate reduction next month, according to the CME FedWatch tool.

Government data on Thursday showed that the US economy contracted more than previously estimated in the first quarter as consumer spending weakened.

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